THE EFFECT OF INCOME SHOCKS THE EFFECT OF INCOME SHOCKS ON CHILD LABOR AND CCTs AS AN ON CHILD LABOR AND CCTs AS AN

INSURANCE MECHANISM FOR INSURANCE MECHANISM FOR SCHOOLINGSCHOOLING

Monica OspinaMonica OspinaUniversidad EAFIT, Medellin Universidad EAFIT, Medellin

ColombiaColombia

Indirect effects of CCTs

CCTs have become the most important social policy in LA

A number of studies provide strong evidence of the positive impacts of these programs on the main targeted outcomes: school enrollment

Behavioral changes could reinforce or offset the short term impact of these programs

Long-run poverty alleviation through investment in human capital

Motivation

Evidence that poor and credit constrained households use self-insurance instruments to buffer shocks: child labor

FA conditions CCTs on children’s school attendance: if the price effect is much larger than the income effect of economic shocks, then CCTs can protect children’s education under risk

Costs of uninsured shocks can be quite high in terms of human capital accumulation

Role of FA in Colombia’s safety net

Objective

Has the program displaced child labor as a risk-coping instrument?

Test if child labor is used as a risk-coping instrument for poor households in Colombia and whether FA can crowd out this specific behavior under credit constraints

What is the impact of financial markets on schooling investments undertaken by households?

Test if school time displaces/complements work time

Program FA FA is the most important welfare program of the Social Safety Net in Colombia

Started operating in 2002 and has benefited approximately 1.5 million households

Educational and nutritional components: cash transfer is about 25% of their average income

Eligibility criteria: poor households with children less than 18 years old located in targeted municipalities (also displaced households)

The program’s evaluation survey is representative of poor rural households in Colombia

The program was not randomly assigned, but control towns are broadly comparable to treatment towns

Panel data of treated and control households, 2002-2005, with detailed data at individual, household and municipality level

Literature

Impact of uninsured shocks on school attendance and child labor outcomes (Beegle, Dehejia, & Gatti,2006; Duryea, Lam, & Levison, 2003; Guarcello, Mealli, & Rosati, 2003; Jacoby & Skoufias, 1997)

Role of CCT programs on children’s school enrollment and work decisions (Schultz (2004), (Bourguignon, Ferreira, & Leite, 2003, Attanasio et al., 2006)

Relationship between economic shocks and the impacts of CCTs on school enrollment (de Janvry et al.,2006; Maluccio 2005)

Theoretical framework

Model of human capital accumulation under uncertainty and incomplete markets (Jacoby and Skoufias, 1997)

Households maximize a utility function defined over current consumption and future (children’s) consumption

Children’s time can be used either to further increase current consumption through work, to accumulate human capital, or for leisure

Human capital determines children’s future consumption.

The presence of credit rationing restricts the budget set of the household and, if binding, will generate inefficiently low level of investment in human capital.

Theoretical frameworkThe model predicts four possible outcomes for children’s activities: a child can attend school full time, work full time, do neither or combine work and school.

The decision of the household concerning the activities of their children will be guided by an unobservable utility index I :

U=f(Z, X, C, S)

•Z indicates set of household characteristics including household permanent income net of children’s contribution

•X indicates a set of proxies for the rate of returns to child work and for cost and returns to schooling

•C indicates a set of variable relating to credit rationing, access to, public or private, insurance mechanisms

•S indicates realized shocks

Data

Children’s types of activity, participation percentages

Data Frequency of shocks

Data

Mean statistic, access to insurance

Methodology

1. Probability of school enrollment and child labor participation prior to the program under credit constraints and income shocks: fixed effects probit model

Results Probability of school enrollment for children 7-17 years old prior to FA

Results Probability of child labor for children 7-17 years old prior to FA

Methodology

2. Impact of the program (ATT): DiD Matching

Interactive effects with shocks and credit access

Outcomes: Intensive margin: children’s time at school and at work

Extensive margin: participation in school full time, work full time, and combined school and work

ResultsATT of FA program for the second round of the survey

Results

ATT of FA program for the second round of the survey

ConclusionsPoor rural households use child labor to cope with income shocks, but at the expense of leisure or studying time of children

Credit-constrained households have a higher probability of using child labor as a risk-coping instrument

FA provides strong incentives for children to combine work and school when households are exposed to shocks

FA can work as insurance for the schooling of the poor but are not able to completely displace child labor

1. Can CCTs fulfill role of safety net at times of crises?

o Protects food consumption and school enrollmento FA is not very effective in displacing risk-coping instruments such as child laboro Lack built-in flexibility to expand coverage to households falling below poverty during crisis

2. Do CCTs generate behavioral changes of adults?

o So far no negative incentive effects on adult work

o Future research: investments and income generation

Critical issues